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Earnings Performance of Wacker Chemie AG as per the German Commercial Code

In 2016, Wacker Chemie AG’s earnings performance was influenced by a decline in the operating result. While operating performance edged up year over year, the operating result decreased, mainly due to higher material costs.

The cost of materials rose to €1.79 billion in 2016 (2015: €1.50 billion) and contains high procurement costs for polysilicon purchased from Wacker Polysilicon North America L.L.C., a subsidiary, under a manufacturing contract. The facilities at the new polysilicon production site in Tennessee were successfully commissioned early in the year and ramped up to planned production volumes by year-end. Wacker Chemie AG’s procurement price includes the start-up costs incurred at the beginning of the year and the idle-capacity expenses relating to the production ramp-up. Price trends for raw materials were a positive factor, as the average purchasing price for all key raw materials fell year over year. The largest price declines were for silicon metal and vinyl acetate monomer. In addition, outlays for energy were down. Overall, the material-to-sales ratio rose to 48.9 percent (2015: 41.5 percent).

Personnel expenses increased by 6 percent to €872.4 million (2015: €825.4 million), developing almost in line with sales. The reasons for this rise were collective bargaining agreements and non-recurring expenses to secure the future financing of the Wacker Pensionskasse VVaG pension fund. Wacker Chemie AG had 9,539 employees as of December 31, 2016 (Dec. 31, 2015: 9,519). At 23.9 percent, the employee-expense ratio remained at about the same level year over year (2015: 22.7 percent).

Depreciation and amortization decreased by 5 percent to €296.5 million (2015: €312.1 million).

The other operating result, consisting of other operating income less other operating expenses, declined by €86.5 million to € –518.2 million (2015: € –431.7 million). This decrease was largely due to a reduction in income from advance payments retained and damages received in connection with terminated polysilicon contracts, which totaled €20.3 million in fiscal 2016 (2015: €137.6 million). Other operating expenses included – in addition to exchange-rate effects – selling expenses, maintenance, other contractor work, rents, servicing costs, R&D costs and costs assumed on behalf of subsidiaries. The foreign currency result improved, and amounted to € –8.6 million (2015: € –21.1 million). Income from the reversal of provisions led to an increase of €11.6 million in the other operating result (2015: €5.2 million).

The operating result came in at €180.0 million (2015: €551.1 million). The WACKER SILICONES and WACKER POLYMERS chemical divisions enhanced their contribution to earnings. WACKER BIOSOLUTIONS’ positive result in 2016 was almost unchanged over the prior year. WACKER POLYSILICON was impacted for the first time by material costs for the procurement of polysilicon from the subsidiary Wacker Polysilicon North America L.L.C. under a manufacturing contract. In addition, income of €20.3 million from advanced payments retained and damages received in connection with terminated contracts was lower than in the previous year (2015: €137.6 million).

At €27.1 million, the result from investments in joint ventures and associates was below the prior-year level (2015: €71.5 million) due to lower income from subsidiaries under profit-and-loss transfer agreements. Aside from income from such agreements, the figure includes dividend payments totaling €38.0 million, after €81.7 million in the prior year. In 2015, the profit transferred from Dritte Venture GmbH had contained income from the sale of shares in connection with the Siltronic AG IPO.

The net interest result improved by €107.2 million to €2.5 million (2015: € –104.7 million). This was mainly due to first-time use of the 10-year average interest rate in line with the German central bank’s interest regulation. As a result, the discount rate used for pension obligations rose slightly year over year. This is why interest expenses from provisions for pensions were only €13.7 million in 2016 (2015: €91.0 million). Interest expenses for financial liabilities were slightly lower year over year, as was interest income from securities and fixed-term deposits. On the other hand, interest income from the financing of subsidiaries increased following adjustments to contract terms and conditions. These factors caused income before taxes to decrease to €208.4 million (2015: €515.6 million) and net income to decline from €335.8 million to €121.4 million.

Income tax expenses amounted to €87.0 million (2015: €179.8 million) and comprised current taxes paid by Wacker Chemie AG as well as taxes paid for those domestic subsidiaries with which it has profit-and-loss transfer agreements.

Net income came to €121.4 million. Retained profit for 2016 – calculated as the profit carried forward from the prior year less €99.4 million in dividends paid – totaled €1.24 billion (2015: €1.22 billion).